Graduations, Celebrations, Personal Finance

Congratulations on finishing college! This is a big achievement and you should take this time to savor the moment that is the result of all your hard work. According to US government data, a college degree increases your lifetime earning potential by $1 Million. You are going to love the journey you are about to embark upon as you take charge of your life. And that includes taking charge of your own finances. But, where do you begin?

To quote the classic song from the movie Sound of Music, let’s start at the very beginning…a very good place to start. In the world of personal finance, that place would be to establish your goals. It can be long term like becoming a millionaire in the next 10 years. They can also be somewhat more immediate like upgrading your phone soon, saving for a vacation, or buying a new car next year. The important part is to list each goal by when you want to reach it – e.g., in the next one year, 1 to 2 years, more than 3 years, etc.

Once listed don’t just stop there. This is not a wish list. This is a list of goals you want to achieve by your target date. So, if you are serious about achieving them, put a price tag next to these goals. Putting a price tag even if Mom or Dad are going to pay some of it means you are taking responsibility for making it happen. The price doesn’t need to be exact, it just needs to be visible. Once you have the list, you can prioritize the items, update them or even delete them.

Now that you have your goals, you need to find the money to pay for them. So, list your sources of income – e.g., if you have already landed a job that would come with a paycheck, or an internship, or you may get part-time or freelance gigs. Once you have a handle on your income, you can start to list your expenses. Then sort the expenses in three categories – must-haves, nice-to-haves, and don’t-need-anymore. This new list even has a technical name. It’s called a Budget. Congratulations, you have successfully created your first budget.

Sounds simple, right? Perhaps. But a 2013 Gallup survey showed that only 1 in 3 households creates a budget. Gallup also found that only 32 percent of US population is using their computers or online financial planners to manage their money. There were some striking disparities among the demographics. Of those with a high school degree or less, only 17 percent say they use a computer or online financial program. For those with a college degree the number jumps to 44 percent. For those who make $75,000 or more a year, 53 percent use financial programs versus 22 percent for those making less than $30,000 a year.

Bottom line, whether you use a scratch pad, online planner or a spreadsheet, when you put your income next to your expenses in a budget, you immediately know what’s within reach, what’s a few years away, and what’s completely irrational. The essential and non-essential separation of expenses takes away the mystery behind what you have to have money for and what can wait. And the state of calm that comes with this knowledge is what we all want to achieve.

My last piece of advice is that don’t let perfect be the enemy of good. There is no wrong way to take charge of your finances. A small start filled with missteps and learnings is better than not starting at all. So, once the party is over and the guests have left, get cracking on your budget and make your dreams a reality.

Good luck with the exciting road and a happy financial life ahead of you! Drop a line in the Comments section as you go through your journey and make new financial discoveries.